Value on the Curve

As of March 28, 2016 (with a 1+ week delay):

Value on the Curve: (active CA trades):

  1. ** Buy the neglected non-quarterly meetings. I still like this, but this has moved away from the best levels.
  2. ** The relative curvature in the greens looks high compared to the slope. Oddly, even with the flies in the greens going lower, this is still true. I like this for rolldown.
  3. ** Look to establish long double fly positions at the back of the curve. Recession looks less likely and the Fed looks like they want to be more cautious about hiking.
  4. * Look for cheap recession/ease trades. The recent flatness of greens-golds gave us an opportunity to put on some overweighted conditional call steepeners, which should kick in on an ease.

Value on the Horizon: (“C” trades):

  • * Look for “smart bearish” trades after payrolls . The Bloomberg chart on March payrolls spooked me.
  • * Vol is low. Look again at some “cheap” ease trades in the next few weeks.
  • * Find ways to fade negative rates. If the economic data holds but there is more panic, I’ll be ready.
  • * A potential European banking crisis should cause libor to stay high. And Brexit.
  • The Fed may ease intermeeting, but they won’t hike intermeeting. I like having longs in front of our shorts.
  • There is upside to owning the year-end turn. The turn at 0.5bps seems low – especially as rates go higher.  Wait for the curve to stabilize.
  • Flies around the purples look high relatively. Still waiting for good levels.
  • Consider the timing for a “halfhike.”